The world’s political systems today are, generally, neither fully despotic on the one hand, nor are they completely anarchical on the other. Instead most of us languish under so-called “social democracy”, a curious mixture in which a degree of sovereignty in the form of voting rights reside in the citizenry while political leadership and control remains distinct in the form of various functionaries such as Presidents, Prime Ministers, Congressmen and Members of Parliament. A libertarian might contend, of course, that such a social democratic system is worse for individual liberty than a dictatorship or monarchy, but the important point is that the ideological extremes have been blended into a kind of soup which is, at least from the de jure point of view, really neither total freedom on the one hand nor total despotism on the other. In exactly the same way, neither do our economic systems (which amount to pretty much the same thing as political systems) represent any ideological purity. We are neither fully capitalist nor are we completely socialised but, rather, have to put up with some kind of “mixed” economy with capitalistic and socialistic elements.

Although the relationship between economic and political systems is one joined at the hip, the justification of social democracy on the one hand and of the mixed economy on the other appears to come from different directions. Democracy, rightly or wrongly, is believed to a good and noble thing in its own right – a positive and independently justifiable improvement over any other option. The mixed economy, however, appears to be based on little more than the intellectually slothful adage that “the truth lies somewhere in the middle”. Capitalism, it is alleged, while bringing massive economic growth and improvement in the standard of living, leads to unstable business cycles and encourages greed, selfishness and extensive inequalities in wealth and income. Socialism, on the other hand, may make things “fairer” and more equal yet it totally decimates the productive capacity of a nation and the standard of living stagnates or even reverses. The “correct” system “must”, so the argument goes, lie in between these two points, somewhere that can seemingly take the best of both systems while avoiding the alleged pitfalls. Hence we end up with the mixed economy.

The first question we might as well ask when tackling this fallacy is that if we adopt a position somewhere in between these two alleged extremes what argument is there to suggest that we will end up with the “best” aspects of each system rather than the worst? In spite of the socialistic element income inequality and wealth concentration in the hands of a few elites seems to be worsening, not getting better; and in spite of the capitalistic element we have failed to have any meaningful growth since 2008. May be it is the alleged good parts of each system that are cancelling each other out and not the bad? The fundamental flaw, however, is that the assessment of the characteristics of capitalist and socialist economies that identifies their good and bad aspects are partly wrong and it is the wrongly diagnosed parts that are exaggerated in making the case for a mixed economic system. The good aspects of capitalism, private property and free exchange – such as economic growth and marked increases in the standard of living – are, as we know from “Austrian” economics, true; the bad aspects, on the other hand – selfishness, inequality, greed, the business cycle, and so on – are largely false or misstated. Capitalism does not encourage anyone to be greedy or selfish at all – it just gives you the freedom to be as greedy or altruistic as you like, provided that you fulfil those ends through voluntary trade and do not engage in outright theft or fraud. What opponents of capitalism don’t like is that people, when set free, usually choose to pursue their material welfare as the first priority, while also overlooking the fact that the resulting productivity usually reduces poverty anyway. Even if it didn’t, however, it confers upon people the wherewithal to be more charitable out of choice and it is no mystery that many of the great charitable foundations – such as the Salvation Army, the YMCA, the Scout Movement and the Rotary Club – were founded in the nineteenth century or early twentieth centuries, the relatively most capitalistic period in history. Moreover, the business cycle, as we know, is not an inherent feature of a free market economy, but is caused by credit creation, something that is only sustainable with government and central bank sponsorship. Yet when justifying the “mixed” economy it is these bad aspects that are cited and emphasised in an attempt to cajole people into accepting a blended economic system. Turning to socialism, we know that such a system would obliterate all productivity and the standard of living would sink far below that to which we are now accustomed. Its bad aspects are, therefore, all true. Yet the good aspects – greater equality, fairness, and anything that can be categorised under the current, in-vogue term of “social justice”, are all patently false. Socialism does not create any equality at all; it does not mean that every portion of wealth in existence will be carved up into equal shares for everyone to then enjoy. Instead, it transfers the power over whole resources from private producers, who must maintain their ability to satisfy consumers in order to retain that privilege, to politicians and bureaucrats. Nationalising an industry does not give you, the average citizen, any greater access to the goods and services tied up in that industry. Rather you are left even more at the bottom of the heap than before as the political lords and masters decide what that industry will produce, what prices you will pay, what level of service you will receive and you are stuck with whatever they decide to give you – providing that the inefficiency and waste of state run industries has anything left to give. The very reason why property rights and ownership exist is precisely because there is no agreement on how resources should be used. This problem exists under socialism as it does under capitalism and one person’s decision must, at some point, overrule all others; any equal “voting” influence that you might have in this regard may be restricted to a one off, catch-all election every four or five years and in the meantime you have to suffer whatever it is that the electoral victors throw down from their table. Under capitalism, however, your voting influence is felt all the time in a highly specific manner through your spending habits. If a producer fails to produce what you want at a price you can pay he loses you there and then. Not so under socialism where you have to put up with whatever the upper elite, controlling all resources, decides will be produced. Furthermore, providing social safety nets and welfare states in pursuit of some kind of “social justice” does not result in a society that is more caring and sharing. If anything, the adage “from each according to his means to each according to his needs” completely disintegrates any moral fervour. By separating individual productivity from individual reward, wealth creation is turned into an stockpile to which a person contributes that which he is able according to his “means” then takes out according to his “needs”. Unsurprisingly, every person seeks to minimise the amount he has to put in through toil and sweat and maximise what he can take out in goods and services that he can sit back and enjoy without effort. This results in a population that fails to cultivate its talents towards increasing wealth such as hard work, responsibility and self-reliance and replaces them with characteristics that make them needy and pitiful, with an added layer of laziness, corruption and freeloading. This is precisely the problem faced by our bloated welfare states today and why they are completely bankrupt – demand has swollen to such an extent while supply has been hopelessly dwindled. None of this is exactly the antidote to “greed” and “selfishness” that advocates of the mixed economy might expect. Additionally, the resulting scarcity usually spawns black markets and underground trade, increasing the scope of legally defined criminality and, in worst case scenarios, penalising the population for attempting to acquire what should be every day goods and services.

A further fallacy is the assertion that private enterprise does some thing” better than government while government does other things better than private enterprise and we should look to the “evidence” to decide who should do what. But by what standard do you conclude that something is being done better by one or by the other – and by what standard do we judge whether a certain activity should be carried on at all? Private enterprises make this judgment through the profit and loss test; the quantity and quality of resources devoted to production of a good and service is rationed by its ability to make a profit, indicating the height of its demand by consumers. A service will be of low quality or unavailable to certain sections of the population simply because consumers are not willing to support a more extensive level of production in that particular industry. The reason why broadband internet was not, in the UK, extended to all rural communities without the force of government was not evidence of “market failure”. It simply meant that the more extensive resources necessary when compared to urban areas were required more urgently to produce other goods and services that people wanted to buy. Any “evaluator” who determines from the “evidence” that government is needed for rural broadband cabling is necessarily substituting his own value judgments for everyone else’s, denying them the goods that they really demanded and giving them those that are not. Nor can we fall back on the assertion that government should run “essential” industries for there is no such thing as an “essential” industry. Humans do not evaluate goods and services in whole, homogenous concepts such as “fire services”, “health services”, “utilities” and so on – rather they are demanded in specific quantities in specific times and places. What is most highly valued by an individual changes from moment to moment. While we may think of “medicine” as “important” we can easily imagine ourselves in a situation where we would prefer to do something “unimportant” like watch television rather than produce another bottle of penicillin – and some people may not want medicine at all if they maintain their health. Precisely the point where we stop devoting resource to the production of penicillin and move them towards producing televisions can only be judged by the profit and loss test of the free market. Any other judgment is necessarily arbitrary and at variance with the demands of consumers. In any case, as libertarians, we might also ask if an industry is really critical why on earth would you want it in the hands of the government where it can be royally screwed up? And why would it even need to be? If it is heavily in demand then profit opportunities will abound and private entities will have no problem meeting it – it is the unessential industries with low demand that struggle to stay afloat without government support.

The real reason, of course, why we have ended up with this system is, in fact, pragmatic rather than intellectual. Capitalism is the goose that has laid the golden egg and any decimation of capitalism would very quickly destroy the standard of living of the citizenry, prompting a swift revolution. Yet government yearns for power and control and cannot be content with letting things be; it therefore has to paint capitalism as this necessary evil which, like a dangerous pet, somehow brings good things when controlled in the right way. Ironically, of course, it is government interference in an attempt to provide a socialistic element that brings about the chaos and injustice that is blamed on capitalism. We have boom and bust because of government-sponsored credit creation, and the rich are getting richer and the poor poorer because the government bails out these cronies from the resulting disarray at the expense of the rest of us. Indeed, having a “safety net” against the alleged “sink or swim” nature of capitalism has turned out very well if you are an investment banker. None of this would happen in a genuine, capitalist economy.

The mixed economy is therefore nothing but an unjustifiable charade, built upon alleged weaknesses of capitalism and supposed strengths of socialism that simply do not exist. Genuine economic prosperity for everyone in a fair and just society populated by morally healthy individuals can only come through unfettered private property and free exchange – not through government’s attempt to meddle with it.